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FAQ: Why can't features created dynamically in a script be reprojected?

Question

Why can't features created dynamically in a script be reprojected?

Answer

The current design of the software does not provide for reprojecting features in memory without writing the geometry to disk in a feature class.

This is documented in the ArcGIS Help 10.1 topic for the Project (Data Management) tool.

ArcGIS Help explains that the output of a projection cannot be written to the in_memory workspace; in_memory is not a valid workspace for the output dataset. The output must be written to a feature class on disk.